Ping An Group pools Internet finance resources together as it prepares to list

In July 2015 the Ping An Group announced the merger of 1qianbao, its payment solution and Wanlitong Loyalty Points Program. The merger came as a surprise for many employees of the payment division, as the service was successfully growing over the year and a half since the launch.

1qianbao reported RMB 202.4 billion in transactions in the first quarter of 2015 (Alipay had 1,200 billion in Internet and 1,600 billion in mobile payment in the same period). It's worth noting that the business model is different from other license holders like Alipay or China UnionPay, as the Shenzhen-headquarted group has multiple assets in the financial industry to leverage when expanding its payment service's reach. The company reported 30% of its 1qianbao wallet users have been customers of other departments.

Wanlitong, the loyalty program management platform, claims to be the largest in China. The platform allows users to keep tabs on their existing member reward points with major loyalty programs, and gives merchants a way to offer coupons to the user base.

The merger is expected to have the synergistic effect on both platforms, and as a result Ping An will catch up with other platforms like Alipay and Wechat that already have coupons and payments tied together. For instance, the latest version of Alipay if shifting the user focus of the wallet towards O2O offerings, and WePay itself evolved from the messaging app.

There are two implications arising from the merger. First, clearly the Ping An group is combining its Internet finance assets into one company for a listing. Earlier this year the financial conglomerate integrated P2P, direct loans and credit insurance businesses into an entity called Puhui Finance. One of the company executives has noted that the group's stock price does not reflect the Internet finance assets that the company has. Insurance and banking business are rather mature industries and do not have the growth rates to rival that of Internet finance companies. Such companies are in a good position to capture a lot of value in future and hence have high valuations. For instance the Ant Financial is valued at USD 45 billion, though its newly-opened bank is yet to gain traction. If Ping An's Internet finance entity lists, the its stock P/E ratio will likely be higher than of the of its parent group.

Secondly the merger shows how the payments industry is quickly becoming reliant on additional services to be profitable. With the intense competition in the industry, fee rates are shrinking and some players are taking radical steps to gain market share, such as Baidu wallet charging merchants zero fees for its payment service. Many in the industry say consumer data is the most valuable part of a payment system user base, and not the ability to charge transaction fees. Will the technology and fierce competition render Internet payments free, just as the email did to message sending? Will the economies of scale and new business models do something that Bitcoin had and opportunity to do, but hit a roadblock?